International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
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Available online at http://www.ijims.com
ISSN: 2348 – 0343
Consumer preference and Automobile Market in India
Aman Saxena
National Law School of India University,Bangalore, Karnataka, India
Abstract
Consumer preferences combined with their budget culminates into final purchase which the automobile industries need to
tap. The paper evaluates a Engel-Coleman-Blackwell model through which consumer preferences can be determined which
is a four stage process of Input, Information, Decision process and variable Influencing. In the next segment, methods of
estimating consumer preference is discussed including survey and its limitation as well as Revealed Consumer preference
which gauges the preferences in retrospect after the choice has been made. Using the latter, the paper analyses the consumer
preference in Electric car segment, technological innovation, high priced small car segment, diesel-petrol preference and
body style. At the end, paper does a case study on Toyota Kirloskar cars to find out the consumer preference regarding
particular features on comparing Toyota with other companies and itself by the criterion of sales. The paper concludes by
stressing on the enumeration of consumer preference for successful decisions on product designs, branding and distribution
and focus on predicting it to an extent with the consumer research activity which is indispensable to satisfy the consumers in
the long run.
Article
Consumer preferences are defined as the subjective (individual) tastes, as measured by utility, of various bundle of goods.
They allow the consumer to rank these bundles depending upon the quantum of utility derived by their consumption. It is to
be noted that preference is independent of income and prices.[1] One’s capability to purchase is not a determinant factor for
one’s likes or dislikes. For instance, One can have a preference of Mercedes over Nano but have the budget constraint of
purchasing only a Nano.
Consumers make decisions by allocation of their scarce income across all possible bundle of goods in order to derive greatest
satisfaction. The preferences may depend on plethora of factors inter alia, culture, education and individual tastes. [2] The
preferences can be mapped through use of indifference curves.The dawn of automobile manufacturing started in India when
Hindustan Motors in 1942 and premier auto in 1944 started indigenous production. [3] The industry has come a long way
since then with the fiscal year ending in 2012 with production of 20,366,432 vehicles of which share of two wheelers,
passenger vehicles, three wheelers and commercial vehicles were 76 percent, 15 percent, 4 percent and 4 percent
respectively as shown in Table 1. Passenger Vehicles segment grew at 4.66 percent during April-March 2012 over same
period last year. Passenger Cars grew by 2.19 percent For the first time in history car sales crossed two million in a financial
year [4] as shown in Table 2.
CONSUMER PREFERENCE IS THE FOUNDATION OF CONSUMER DEMAND. HOW HIGH THE PRICES WILL BE, WHAT WILL BE THE REACTION
OF CONSUMER BY CHANGE IN PRICE, HOW MUCH THE CONSUMER IS WILLING TO PAY AND ACCORDINGLY PROFITABILITY DEPENDS UPON
UNDERSTANDING OF CONSUMER BEHAVIOUR.
International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
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HOW DO CONSUMERS MAKE CHOICE
THE ENGEL-KOLLAT-BLACKWELL MODEL OF CONSUMER BEHAVIOUR
A model of consumer decision making will help us to better understand the formation of consumer preference. The EngelKollat-Blackwell model [5] was formed to describe increasing amount of knowledge of consumer behavior. It is a four stage
process:
1. Input -The focus of the model is on five fundamental decision-process stages:
Problem recognition, search for alternatives, alternate evaluation (during which beliefs may lead to the formation
of attitudes and preference) which in turn may result in a purchase intention and purchase outcomes,elaborated in
Table 3.
2. INFORMATION- information is sought by the consumer to make a satisfying and in all probability, better choice.
The process of search begins typically when the consumer takes a conscious decision to purchase a product and
ends with its purchase. There are two ways in which information can be obtained. First is the external search which
includes information from sources such as friends, books and magazine articles on automobiles, sales-persons at
dealerships, and actual experience test-driving new automobile. Second is to scan long term memory which requires
little cognitive effort. [6]
3. DECISION PROCESS- in this stage, the consumer’s exposure, attention, perception, acceptance, and retention of
incoming information come into play. The buyer is initially exposed to the information, then he interprets the
stimuli, and retain the message by transferring it into long term memory. [7]
4. VARIABLES INFLUENCING- it consists of individual as well as environmental factors that influences the
preference and consequently choice of customer. Individual characteristics represent lifestyle, personality, values,
motives and the social influences are reference teams, family and culture. Situational influences like consumer’s
money condition also influence the consumption choice method [8].
I. ESTIMATION OF CONSUMER PREFERENCE
Estimation of consumer preference provides managers with necessary insight to help them formulate product design policies
and determine optimal sales. Identification of preferences is one of the major problems so that changes in demand of a
differentiated product can be estimated when quantity of one or more attributes is modified. [9] The automobile industry
adopts the following methods:
A. Survey- it is the most conventional method used to obtain large and random market data of consumer belonging to
varied groups, having varied tastes. Then psychometric techniques such as factor analysis, multidimensional
scaling, cluster analysis, preference regression, expectancy value and choice analysis are utilized. [10] After these
processes , a rough estimate is arrived at.
Limitations [11]
 Justification bias- an already chosen or an alternative which is familiar is preferred by the consumer to reduce
decision effort.
 Lexicographic response bias- consumers consider only the subset of attributes and ignore and ignore trade offs with
other attributes.
 Experimental bias- interviewer/respondent interaction, lack of cogency in performing experimental tasks etc
 It represents desire rather than preference under constraints.(eg budget constraint)
International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
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B. Revealed preference [12]the concept of revealed preference theory is that it works in reverse order because it is
difficult to assume that the consumer has in his mind a mathematical formula while making a choice between
different options. So what this theory does is that it infers these utility functions, based on the choice that has
actually been made. Thus, by closely analyzing the sales of automobiles in different segments across the market,
one can gauge the inclination of the consumers of that market.
It is based on two axioms:
 Weak axiom of revealed preference [13]: it means that if A is revealed preferred to B, then it means that if
consumer ever chooses B it is because there was enough left over in budget to facilitate choice of B too.
 Strong axiom of revealed preference [14]- it brings in transitivity. If A is reveal preferred to B and B is
reveal preferred to C, then it means that A is indirectly reveal preferred to C, graphically represented in
Fig 1.
This substantially reduces the quantum of empirical evidence needed to define
consumer preference. The
aggregration of the collected data helps find out the general truth about a population’s preference.
ANALYSIS OF CONSUMER PREFERENCE IN THE AUTOMOBILE MARKET
A. FOR ELECTRIC CARS
In a survey conducted by Zpryme Research and Consulting involving 1046 men and women about their hunch to
buy an electric vehicle in the next two years, 8.2% of respondents agreed that they were very likely to buy an
electric vehicle, 28.7% considered somewhat likely and in the next five years, 25.8 % of the somewhat or very
unlikely category will buy one, [15] shown in Fig 2.
According to 66.8% of those surveyed, price was the primary reason for the purchase consideration. For the 50.4% of the
respondents, it was fuel efficiency, for 64.1% of those who were very or somewhat likely to buy, environmental concern
was a big concern. [16] shown in Fig 3.
Of those who were very or somewhat likely, 33.7% would settle for a driving range of 650 kms whereas 33.3%
would settle for 500kms. [17] shown in Fig 4.
31.1 percent of those surveyed said they would pay a bit more for an electric vehicle than for a conventional vehicle, with
12.6% saying they would pay upto 2.5 lakhs more, and 5.2 percent agreeing to pay extra 5 lakhs. [18]
From the data it can be inferred that in the next 2-5 years there would be a reasonable demand for electric vehicle
somewhere between 30-40% with driving range of about 500-650 kms with consumers willing to pay 2.5_5 lakhs
more than the conventional vehicles.
B. FOR TECHNOLOGICAL INNOVATION IN DRIVING EXPERIENCE
In a survey conducted by Cisco examining consumer’s preference for technology in driving as well as buying
experience. The consumers are using much advanced tools of communication technology to bring on board both car
dealership and manufacturer. Almost half(47%) of the 1500 people surveyed globally give credence to brand’s
technological reputation while purchasing a vehicle.
International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
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Main Highlights:
 Most Consumers begins their purchasing process online- 83% of the consumers begin their
research for information online as compared to only 17% who prefer to call up or visit the
dealership.
 Preference for a more automated for tracking maintenance cost
tracking of gas prices from vehicle is desired by 52% of the consumers which was the highest
priority as compared to 46% of consumers for tracking insurance prices, and 35% for tracking
roadside assistance availability, and 32% wanted to track recall information. [19]
 Willingness to trade personal information for customization security and savings
a. Lower insurance/maintenance: 74% are willing to save on insurance and maintenance cost
by trading their driving habits. [20]
b. Increased personal security: 60% are willing to trade their biometric information like DNA
and fingerprints for car security. [21]
c. Customized cars: 65% would trade heir Height/Weight and entertainment preference for a
more customized car suitable to consumer’s preference. [22], Fig 5.
 Preference for driverless or automated automobiles:
more than half i.e. 57% of the total surveyed agreed that they will prefer a driverless, self
propelling automated car over manually driven one. in India, 86% of the sample acquiesced to
it. [23]
C. PREFRENCE FOR HIGH PRICED SMALL CARS
according to the J.D. Power Asia Pacific 2012 India Sales Satisfaction Index (SSI) Study [24] average time period
required by a consumer to purchase a small car remains at 10 months. Although the level of income and transaction
price has risen in India, the preference for owning small cars remains unchanged. What has changed primarily is
aspirations of consumers to own high priced small cars. [25]
This has resulted in greater choices for consumers who have a propensity to migrate towards value offering. An
increase in the average household income and preference of consumers for better styling and features has driven
vehicle shoppers to buy higher-spec small cars, resulting in owners’ income stretch remaining unchanged. [26]
D. PREFERENCE FOR DIESEL CARS OVER PETROL ONES
In 2012, high petrol prices made consumers shift towards diesel propelled vehicles and as many as 43% of the total
purchase was of diesel cars which was 11% higher than what it was in 2011. [27]
But it substantially increased the waiting time to 17 days on average which was double to what it was in 2011
because of increased demand. [28]
E. BODY STYLE DISTRIBUTION
55% of the total purchase in the market is of hatchbacks as compared to 18% each of sedan and MUV and 9% SUV
[29]. The consumers show preference for hatchbacks as it costs less, especially in the Indian market because of wide
spread income disparity. [30] shown in fig 6.
International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
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A CASE STUDY: TOYOTA
Toyota Kirloskar is the fifth largest car maker in India. [31]. It has 9 different passenger car models in the Indian market. It
has been chosen to study the consumer preferences as it is the top car maker of the world. [32]. The models of Toyota have
been compared to the models of different manufacturers to dig deep into the prevalent preferences.
A. TOYOTA INNOVA AND RENAULT DUSTER
Innova is the most popular MUV offering of Toyota in India and Duster of Renault in SUV segment. The comparison of
features and dimensions is mentioned below:[33]
FEATURES
INNOVA
DUSTER
PRICE
9.6-14.71 LAKHS
8-12.5 LAKHS
SEATING
8
5
POWER
100BHP/3600 RPM
108BHP/3900 RPM
LENGTH
4585 MM
4315 MM
FUEL EFFICIENCY
9 KM/L
17KM/L
From the table 4 it is seen that from july to December 2012 Innova sold 36004 units as compared to 23731 of Duster.
Innova, despite having higher price, lesser power and significantly lower fuel efficiency as compared to Duster sold more.
The only visible factor here is the seating availability which is 8 as compared to 5 of Duster. It can also be the Brand loyalty
for innova with respect to Renault.
Thus the consumers have a strong preference for space over speed and fuel efficiency.
B. TOYOTA ETIOS LIVA AND MARUTI SUZUKI SWIFT
Liva and Swift belong to the hatchback segment. Maruti Suzuki has the highest market share in India of about 45% with
production capacity of about 1.5million units [34]
FEATURES
ETIOS LIVA
SWIFT
PRICE
4.7-6.6 LAKHS
4.6-7.68 LAKHS
FUEL EFFICIENCY
20 KM/L
18 KM/L
POWER
67 BHP, 3800 RPM
74 BHP, 4000 RPM
[35]
In the period from july to December 2012, ETIOS LIVA sold 12500 units a compared to 17436 units of SWIFT which was
also the second biggest car sale by volume. [36] On a closer look at the table, even though Swift costs more than Etios Liva,
it offers more power others remaining almost same.
Thus it can be inferred that consumers prefer automobiles with more horse power and are willing to pay more for it.
C. TOYOTA ETIOS LIVA AND TOYOTA ETIOS
To find out the preference of consumers within the same brand, two variants of Toyota, Etios and Liva have been taken.
Former is hunchback and latter sedan.
International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
FEATURES
ETIOS LIVA
ETIOS
PRICE
4.7-6.6 LAKHS
5.4-8 LAKHS
LENGTH
3775MM
4265MM
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*other features remain the same.
In the period between july to December 2012, Etios Liva sold 12500 units as compared to 16500 units of Etios even
though the price was higher. But Etios offered 490 mm of extra space.
Thus consumers preferred extra space which gave them more satisfaction. For 490mm of extra space, they
are willing to pay rs. 70,000- 1,40,000 more.
Conclusion
The substantial changes in lifestyle patterns of the consumers have caused tremendous changes in market place which is a
result of globalization and integration of world economies. The measure of behavior of consumer of current generation has
become difficult to gauge as time tested marketing concepts have failed. The preference is characterized by distinctiveness of
an individual’s expectations, for multiple options, heavy tendency of abandoning Brand loyalty and switching towards
competitor brands which provide higher value to the consumer. The new generation consumers are difficult to classify by
conventional demographic factors and unless their thought process and buying behavior preferences are fully understood,
decisions on product designs, product variants, branding and distribution channels are likely to be misled. [37] With
change being unavoidable, Indian companies must learn to recognize the reason and direction of this change most likely to
affect India in the coming future, and identify new competencies that will enable producers to respond to these fast changes.
Consumer preference can definitely not be exactly predicted but it can be done to an extent with the consumer research
activity. Globalization has heralded along with it competition in the passenger car segment and the businesses will have to
concentrate on analyzing the consumer preference to satisfy the consumers in the long run. The income changes and
increasing petrol prices is driving demand of small cars in India. Small car sector offers huge potential as penetration and
consumption of small cars is very less in India compared to its Population.[38] For promoting the product consumption and
creating awareness Manufactures have used advertising campaigns to promote higher consumption by influencing consumer
preference of passenger cars. Thus, consumer preference plays an indispensable role in predicting market demand and
consequent production by the manufacturers.
REFERENCES
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2. Id.
3. Tapas piplai, “Automobile Industry: Shifting strategic focus”, vol 36(30), Economic and Political weekly,2892(2001)
4. Industry Statistics, available at: www.siamindia.com. (last accessed: 2 august 2013)
5. James F Engel et al, Consumer Behaviour, (third edition, Dryden Press, 1978)
6. Girish N. Punj and Richard Staelin, “A Model of Consumer Information Search Behavior for New Automobiles”, Vol. 9,
No. 4, Journal of Consumer Research, pg 366, 367 (Mar., 1983).
7. Beena John,”A Study Of Small Car Consumer Preference In Pune City”, vol 2 issue 3-4,Trans Asian Journal Of
Marketing And Management Research,(2013)
8. “ Study Of Small Car Consumer Preference In Pune City”, supra note 9 At pg no. 4
9. N.M. Arguea et al, “Estimation Of Consumer Preference Using Market Data- An Application to US Automobile
Demand”, VOL. 9, 1-18, Journal Of Applied Econometrics, (1994).
10 Id. At pg no 1.
11. Id.
International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
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12. Paul. A. Samuelson,”Consumption theory in terms of revealed preferences, Vol. 15, No. 60, ”, Economics, New Series
pg 243-253(Nov, 1948)
13. Available at: www.policonomics.com (last accessed:4 august 2013)
14. Id.
15. Ben Coxworth,“Electric vehicle survey reveals consumer preference”, available at: www.gizmag.com ,(last accessed: 5
august 2013)
16. Id.
17. Id.
18. Id.
19. Id.
20. Id.
21. Id.
22. Id.
23. Id.
24. Growing consumer preference for higher priced small cars, available at: www.ibrnews.biz (last accessed:5 august
2013)
25. Id.
26. Id.
27 Id.
28 Id.
29 Available at: www.teambhp.com (last accessed 7 august 2013)
30 Id.
31“why is India crucial for toyota’s plan for Asia Pacific”, available at: www.businesstoday.indiatoday.in (last accessed:
1august 2013)
32 Toyota back as world’s top maker after 2012 sales boost. Available at: www.dw.de(last accessed 1 august 2013)
33 Available at: www.cardekho.com (last accessed: 7 august 2013)
34 Supra note 33
35Supra note 34
36Supra note 35
37. “A Study Of Small Car Consumer Preference In Pune City”,supra note 9 at pg 13
38. Id.
International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
APPENDIX
TABLES
Table 1
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Table 3
Table 4
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International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS), 2014, Vol 1, No.6, 21-33.
FIGURES
FIG 1
FIG 2
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